E.C. Ernst Inc. v. Koppers Co.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civ. No. 77-1045)

Before Seitz, Chief Judge, and Garth and Higginbotham, Circuit Judges.

Author: Seitz

Opinion OF THE COURT

The plaintiff, E. C. Ernst, Inc., and the defendant, Koppers Co., both appeal from a final judgment in this diversity case involving Pennsylvania law of construction contracts.

I.

In the late spring of 1973, the defendant entered into a contract with Jones & Laughlin Steel Corp. (J&L) under which the defendant was to act as general contractor for the construction of a coke battery at J&L's Aliquippa, Pennsylvania, plant. The coke battery was to be modeled on a similar facility being built by the defendant in Indiana. Both involved some novel technology for loading and preheating coal prior to its conversion to coke.

After drawing up plans and soliciting bids for subcontractors, the defendant entered into a contract in June of 1974 with the plaintiff under which the plaintiff would be the electrical subcontractor on the Aliquippa project. This contract called for a completion date in June 1975.

As work progressed, difficulties developed. Problems at the Indiana site required the defendant to modify the original plans for the Aliquippa job. These modifications, and other reasons, required the plaintiff to do extra work not contemplated in the original contract with the defendant. In addition, a variety of factors led to delays in completing the project. As a result, the plaintiff incurred extra expense because it had to work into the winter of 1975. The project was completed in January 1976, approximately six months late.

The plaintiff filed this diversity suit raising several claims. Count 1 of the complaint sought damages for the plaintiff's expenses incurred due to the defendant's delay. The district court found the defendant liable but did not award damages on this count, a ruling the plaintiff contests on appeal.

Count 2 sought recovery of extra costs due to additional work done by the plaintiff. This extra work was done pursuant to "drawing revisions" submitted by the defendant to the plaintiff. "Drawing revisions" are changes in the original drawings and specifications upon which the original contract is based. The district court calculated damages of $1,484,000 on this count but deducted $500 from each separate drawing revision, leaving a total of $1,421,920. The defendant appeals the liability and damage aspects of this ruling, and the plaintiff appeals the $500 deduction.

Count 3 of the complaint involved additional work done by the plaintiff pursuant to field authorizations and directives issued by the defendant. The defendant appeals the district court's award of damages of $9,581.64 on this count.

In addition, the defendant counterclaimed to recover for services supplied to the plaintiff during the construction of the coke battery. The defendant appeals the district court's denial of those claims. Finally, the defendant appeals the district court's award of prejudgment interest.

II.

We first consider count 1, which dealt with damage to the plaintiff due to delays in completing the project. The district court made several findings with respect to the cause of the delay. It first found that the plaintiff was not responsible for the delay. It then concluded that the defendant was responsible for all of the delay. See E. C. Ernst, Inc. v. Koppers Co., 476 F. Supp. 729 (W.D.Pa.1979). Because the defendant was responsible for all the delay, there was no need for the district court to apply the rule of Lichter v. Mellon-Stuart Co., 305 F.2d 216 (3d Cir. 1962), which deals with apportioning damages where the defendant is responsible for some, but not all, of the delay.

The plaintiff sought to prove its damages by using a variation of the "total cost" approach. Essentially, this method requires calculation of actual cost and of cost under the contract. The contract figure is then subtracted from the actual cost to find damages due to delay.

The district court denied damages for two reasons. First, it found that the plaintiff's method of proof was too hypothetical and artificial. Second, the court rejected the total cost approach as a method of proving damages. See 476 F. Supp. at 753.

At the outset, the district court incorrectly rejected the total cost method because we believe that Pennsylvania, if faced with the question, would approve of that approach. Generally, under Pennsylvania law, damages need not be proved with mathematical certainty, only reasonable certainty. E. g., Exton Drive-In, Inc. v. Home Indemnity Co., 436 Pa. 480, 261 A.2d 319, 324 (1970). Moreover, evidence of damages may consist of probabilities and inferences. See generally 11 P.L.E. Damages, § 158. We believe that a method that permits subtraction of contract cost from actual cost satisfies those standards. The objections normally made to the approach, such as that the bid may not be a reasonable estimate, can be adequately handled by making them a question of fact in each case.

This is not to say, however, that a plaintiff merely may label damages evidence as being under the total cost method and leave the matter at that. Under the total cost method, at a minimum the plaintiff must provide some reasonably accurate evidence of the various costs involved. Cf. Seger v. United States, 469 F.2d 292, 303-04, 199 Ct.Cl. 766 (1972) (improper to merely divide the total actual cost by the number of days involved). In general, where the damages are due to delay, there are a variety of costs generated to the subcontractor. These include extra hours expended, whether because the men are idle or ...

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